• The Financial Conduct Authority (FCA) has today confirmed its intention to require providers to offer investment ‘pathways’ to non-advised drawdown customers
• In addition, anyone investing 50% or more of their pension in cash will be required to make an active decision to do so
• New drawdown pathways and cash holdings requirements will be in force from April 2020
Tom Selby, senior analyst at AJ Bell, comments:
“The FCA is clearly attempting to protect consumers from harm through the introduction of investment pathways. However, in doing so it risks pushing savers into retirement solutions that do not meet their specific needs and hard-wiring disengagement at exactly the point people should be taking charge of their fund.
“While the FCA’s determination to make pathways simple is commendable, the idea all retirement income options can be covered by just four investment solutions is unrealistic.
“Furthermore, if people’s personal circumstances change – as they have a habit of doing – a previously chosen pathway may become inappropriate and will need to be reviewed. Ensuring people are aware pathways are not a catch-all solution will be absolutely critical to protect consumers who choose them.
“As pensions move into the digital age, customers rightly expect the process of setting up and accessing their fund to be seamless. By introducing pathways the FCA will make this process clunkier, to the detriment of engaged consumers who know what they want to do and simply want to get on and do it.
“For those committing their fund to drawdown in separate phases – an increasingly common approach to retirement – a pathway will need to be offered each time they do this.
“Staying invested in cash over the long-term is a terrible investment strategy, and so ensuring this doesn’t happen is understandably a priority for the FCA. We are supportive of this and the broader aim of improving engagement and will continue to work with the regulator to ensure it is workable from a practical perspective.”